Time Could be Running Out for Ad-free Netflix

For a long time, Netflix has refused to run ads on their platform. And while the lack of ads is a huge selling point for many customers, the streaming service is starting to lose steam in other areas. Popular shows like Friends, How I Met Your Mother, and more have transitioned to HBO, Hulu, and the like. Netflix has responded to a weakening library of third-party content by pouring money into their original shows — but is it enough?

With more and more streaming services entering the market, Netflix must work harder than ever to be a strong competitor in the market. At the end of the day, they need growth — even if it means sacrificing their ad-free legacy.

Intrigued by Netflix’s untapped ad space potential? Horrified at the prospect of Stranger Things being broken up by Tide ads? Either way, read on for a more in-depth look on why Netflix might need to start running ads.

Keeping up with the competition

Simply put, ad supported services are more affordable. Hulu offers an ad supported subscription at a cheaper price point of $5.99 a month, and Amazon Prime Video is free with Amazon Prime. Even Disney+, has an ad-free option that launches later this year, that will only cost $6.99 a month — in comparison, Netflix subscriptions range from $8.99 to a whopping $15.99 a month. Netflix actually saw a drop in US subscribers this year for the first time since 2011, and  price hikes are to blame. Until Netflix steps up their game — or steps down their prices — consumers looking for a cheap date would probably rather “Hulu and chill”.

Money problems

Netflix has a little bit of a spending problem — the platform is currently $10 billion in debt, and it’s growing. And with more competing services comes more competition for the rights to stream shows — Netflix has to compete with both Amazon and Disney (who owns Hulu and the upcoming Disney+) for the most sought-after shows. Netflix could help offset that debt by running ads, which could potentially bring in billions of dollars of ad revenue.

The future of Netflix

What would an ad supported Netflix look like? Right now, that’s unknown. Netflix could take a page out of Hulu’s book and offer a budget ad supported tier as well as a premium, ad-free tier. Or they could pull a Spotify and make the ad supported tier free, with certain features only available to the premium, ad-free tier. Maybe they could even have a single ad-supported tier, potentially at a lower price point to the current subscription cost. Regardless, it seems likely that an ad supported Netflix would be much more budget friendly.

Man overboard?

Not as many Netflix subscribers are prepared to jump ship as you might think. According to a study by The Diffusion Group, only 27% of Netflix users said they would definitely not switch to a cheaper, ad supported version. If Netflix decides to follow in Hulu’s footsteps with premium and ad supported tiers, they could retain many ad-hating users with a premium tier. And a cheaper, ad supported tier would not only bring in revenue, it would also bring in more customers who may have not been able to justify the $8.99 base subscription.

Netflix may have been stubborn about ads in the past. But as the streaming media landscape changes, business must adapt. It’s Netflix’s turn to decide if they want to stay stuck in the past — or seize an opportunity for growth and hope that their brand is strong enough to warrant ads and premium pricing.